Know Your Business’s Vitals

Lauri PaxtonBlog, BusinessLeave a Comment

Financial-Decisions, Paxton-Bookkeeping

When you go to your doctor there is a baseline where your medical team will start to determine if you are healthy or if you are in need of medical attention.  Vitals such as blood pressure, temperature, weight, cholesterol etc. are monitored regularly.

As a small business owner it is important to know and check the vitals of your business regularly. Understanding and monitoring these key factors will help you to clearly see the early warning signs that something is going wrong, or sales are skyrocketing.  Doing monthly or even weekly checks of your company’s vitals can help to identify a small problem before it becomes too big.

You may be curious as to what vital signs a company holds.  Keeping tabs on things such as:

  • Checking account balances.
  • Outstanding invoices owed.
  • Payroll.
  • Net income per month.
  • Sales by largest customers.

As a business owner when you keep track of these categories, you will be able to quickly see when things simply don’t look right.  By maintaining monthly checks and balances you are able to see problems and take immediate action to correct them.

As your business continues to grow, you may find that there are additional areas in which you also wish to monitor.  Keep in mind the more areas you put on your monthly check up, the more accurate the financial picture for you to make informed business decisions.

Additional check points may include:

  • Revenue year-to- date compared to last year.
  • Days of outstanding sales invoices, allowing you to track how long it takes for each client to pay you.
  • Revenue by service or product line per month.

In looking at revenue year-to-date, especially if you are a brick and mortar store, take into account such things as weather, significant snow storms and sporting teams in the playoffs, etc.  If you have clients taking more than 30 days to pay, you may offer incentives such as a % off for payment within 15 days.

Perhaps you launched a new product line and/or are considering cutting back in a particular division.  Knowing your revenue by chart of accounts or a given product sale, is helpful to determine the direction you should take.

Creating a range or forecast where numbers should fall offers a quicker way to look at a snapshot of your numbers.  As long as the information each month falls within the range there is no need to further investigate.  Leave that for a 6 month audit or annual audit.  If the numbers are outside that range, it tells you that something is not as you expected and needs to be immediately addressed.

Whichever vitals you choose to monitor, pay attention to them.  Checking your company’s vitals monthly will help to make sound financial decisions and quickly react when things aren’t as they should be. 

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